(a) Explain the main causes of inequality in income distribution in India and examine how it affects welfare of the society. (20…

(a) Causes of income inequality in India and its effect on social welfare

Income inequality in India shows up in measures such as Lorenz curves and Gini coefficients, and top-income-share estimates (for example, World Inequality Lab data put the top 1 per cent at about a fifth of national income, though these estimates are debated).

Causes.

(i) Unequal assets. Concentration of land, business capital and wealth, and inheritance of these, leave the poor dependent on wages.

(ii) Unequal human capital. Gaps in education, health and skills confine poor households to low-wage work.

(iii) Social barriers. Caste, gender and regional disadvantage restrict access to jobs, credit and markets.

(iv) Growth pattern. Capital- and skill-intensive growth, a large informal sector and low farm incomes widen the gap between organised and unorganised workers and between urban and rural areas.

(v) Policy. Weak enforcement of land reform, reliance on indirect taxes and leakage in subsidies blunt redistribution.

Effect on welfare. Because the marginal utility of income falls as income rises, a transfer from rich to poor raises total welfare (Pigou), so a skewed distribution lowers it. Inequality also reduces the poor's access to health, schooling and mobility (Sen's capability view), lowers mass demand, raises social tension and lets wealthy groups shape policy. Kuznets' inverted-U suggests inequality may rise first with growth, but it does not fall automatically, so redistribution, public services and employment schemes such as MGNREGA (now succeeded by the VB-G RAM G Act, 2025) are required.

(b) Pattern and trends of national income before the reforms (1950-51 to 1990-91)

Pattern. Real national income grew at about 3.5 per cent a year during 1950-80, an outcome termed the "Hindu rate of growth" by Raj Krishna, and per capita income rose only about 1.3 per cent. Five-Year Plan growth was about 3.6 per cent in the First, 4.2 per cent in the Second, 2.8 per cent in the Third and 3.3 per cent in the Fourth Plan (the Fifth Plan about 4.8 per cent), with the stagnation of the mid-1960s to 1970s tied to droughts, wars and oil shocks.

Trends. Growth accelerated to about 5.6 per cent in the 1980s (Sixth Plan about 5.7 and Seventh about 6). The savings rate rose from about 10 per cent to over 20 per cent of GDP. The composition changed gradually, with agriculture's share falling from over half to about 30 to 35 per cent, industry rising to about a quarter and services to about 40 per cent. Growth was volatile and depended on the monsoon, and regional and income disparities persisted.

(c) Development of the cotton textile industry before Independence, and its constraints

Development. Indian hand-spinning and weaving was once world-famous, but the machine age began with the first mill at Fort Gloster near Calcutta (1818) and, more lastingly, the Bombay Spinning and Weaving Company (1854) by Cowasji Davar, followed by Ahmedabad (1861) and Nagpur's Empress Mills (1877). The industry clustered in Bombay and Ahmedabad and grew on Indian capital and entrepreneurs (Parsi, Gujarati, Marwari). It grew through the Swadeshi movement (from 1905) and the First World War, and with tariff protection from the 1920s and 1930s (Tariff Board, 1927), so that by the 1930s and 1940s Indian mills met most of the domestic demand for coarse and medium cloth.

Constraints. (i) Competition from Lancashire under free trade, and import duties in 1894 that were offset by a countervailing excise in 1896. (ii) Dependence on imported machinery and limited technical skills. (iii) Shortage of capital and the managing-agency system. (iv) Raw-cotton export preferences and the short-staple quality of Indian cotton. (v) Late and partial tariff protection, with an exchange rate unfavourable to exports.